SEBI Mulls 7 Proposals to Curb F&O Trading Risks for Small Investors
SEBI's expert group discusses proposals to protect small investors from risks in index and stock option trading, including rationalization of weekly options and strike prices.
SebiFoDerivativesOptionsTradingRisk ManagementInvestorsRbiFinancial StabilityReal EstateJul 07, 2024
The proposals include rationalization or limiting weekly options, rationalization of strike prices of the underlying assets, and removal of calendar spread benefits on the expiry day. Other measures include an upfront collection of option premiums from buyers of options, intra-day monitoring of position limits, an increase in lot sizes, and a hike in margin requirements near contract expiry.
The move comes amid concerns over the risks associated with retail investors in the F&O market. SEBI chairperson Madhabi Puri Buch has expressed concern over people borrowing money to place speculative bets in the derivatives segment, which could lead to a drain on household savings.
Data from SEBI shows that the overall derivative turnover has jumped from ₹210 lakh crore in FY'18 to ₹500 lakh crore in FY'24, with individual investors in index options increasing from 2% in FY'18 to 41% in FY'24.
The Reserve Bank has also cautioned about the risks associated with retail investors in the F&O market, stating that sudden market movements could impact those who are not following proper risk management.
The expert group will scrutinize the weekly options in detail, as these are most attractive to retail investors who can participate with low capital. Rationalization of strike prices is another area of interest to prevent small investors from incurring losses.
Industry experts have welcomed SEBI's initiatives, stating that they are in the right direction. However, they have also cautioned that long-term investors' ability to hedge their portfolios using options should not be affected.
The recommendations of the expert group will be considered by the Secondary Market Advisory Committee for a final decision.
About SEBI The Securities and Exchange Board of India is the capital markets regulator in India, responsible for protecting the interests of investors and ensuring the development of the securities market.
About RBI The Reserve Bank of India is the central banking authority in India, responsible for regulating the country's monetary policy and ensuring financial stability.
Frequently Asked Questions
What is the main concern of SEBI regarding the F&O market?
SEBI is concerned about the risks associated with retail investors in the F&O market, particularly those who are not following proper risk management.
What are the seven proposals discussed by the SEBI expert group?
The seven proposals include rationalization or limiting weekly options, rationalization of strike prices, removal of calendar spread benefits, upfront collection of option premiums, intra-day monitoring of position limits, increase in lot sizes, and hike in margin requirements near contract expiry.
Why is SEBI concerned about the growth of F&O trading volumes?
SEBI is concerned that the rapid growth in F&O trading volumes could pose several challenges, including the risk of sudden market movements impacting retail investors who are not following proper risk management.
What is the purpose of the SEBI expert group?
The purpose of the SEBI expert group is to recommend short-term strategies to bolster investor protection and improve risk metrics in the F&O market segment.
What is the role of RBI in regulating the F&O market?
The RBI is responsible for regulating the country's monetary policy and ensuring financial stability, including monitoring the risks associated with retail investors in the F&O market.
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